UPPSC/UPPCS Mains- Answer writing practice
What is the difference between quantitative and qualitative methods used by the RBI for money control? (200 words)
मनी कंट्रोल के लिए RBI द्वारा उपयोग की जाने वाली मात्रात्मक और गुणात्मक विधियों में क्या अंतर है? (200 शब्द)
Quantitative controls are designed to regulate the volume of credit created by the banking system, while qualitative measures or selective methods are designed to regulate the flow of credit in specific uses.
Some quantitative methods are as under:
o Bank Rate: It has been discontinued as a policy instrument. It was the rate at which banks borrowed for long term from the RBI. Now it has been aligned to the penal rate, i.e. the MSF rate, which is usually 1 percentage point higer than repo rate.
o Open Market Operations: Open market operations refer to the sale and purchase of securities by the Central bank to the commercial banks
o Variable Reserve Ratios: Variable reserve ratios refer to that proportion of bank deposits that the commercial banks are required to keep in the form of cash to ensure liquidity for the credit created by them. A rise in the cash reserve ratio results in a fall in the value of the deposit multiplier. Conversely, a fall in the cash reserve ratio leads to a rise in the value of the deposit multiplier.
Qualitative methods to control credit are as under:
o Margin requirements: This refers to difference between the securities offered and amount borrowed by the banks.
o Consumer Credit Regulation: This refers to issuing rules regarding down payments and maximum maturities of instalment credit for purchase of goods.
o RBI Guidelines: RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.
o Rationing of credit: The RBI controls the Credit granted / allocated by commercial banks.
o Moral Suasion: Psychological means and informal means of selective credit control.
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